Not All Investments Lose Value Equally: A Payback Period for Digital Assets

With Bitcoin's impressive recovery feature, having it and other digital assets in an investment portfolio could it speed up the recovery time of the entire portfolio?

When investing in financial markets, people often underestimate the possibility that over a period of time the investment may lose value, and it will take time to recover from temporary losses. The deeper the loss becomes, the more the energy needed to recover the losses increases disproportionately. If I invest $100 and lose 10%, I end up with $90 (whether I keep the investment or liquidate it). So to get back to $100, what returns should I make? I have to earn 11% because, with a base of $90, if I earn 10%, I end up with $99. This effect is amplified if I lose 20% — to get back from $80 to $100, I would need to gain 25%.

Thus, losses are not exactly symmetrical to the gains you need to make to recoup them. If I find myself having lost 50% of my investment, to get back to $100 from $50, I have to double it, so it should be intuitive to the reader that the more magnified the loss, the more energy it takes to recover.

The bad news is that Bitcoin (BTC) lost more than 90% of its value on one occasion, more than 80% on two other occasions, reaching a performance percentage of -75% during this period. But the good news is that he has always recovered (at least so far) from losses in a very reasonable time, even the heaviest losses.

Related: Bitcoin Price Prediction Using Quantitative Models, Part 2

The Ulcer Index, i.e. the index created by Peter Martin that calculates how long an asset has been below the previous high, is crystal clear. Investing in Bitcoin causes ulcers for many months, but then leads to incredible returns which, if one has the patience to wait for them, make one forget the period of stomach aches because of the losses incurred.

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